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How to divide inherited IRAs

On Behalf of | Jul 19, 2018 | Divorce |

Currently, there is no clear guidance as to whether an inherited IRA can be split in a divorce. Washington residents don’t have an IRS decision, private letter ruling or even a court case to help determine whether this is possible. Another question to consider is whether the inherited retirement account is to be considered marital or separate property. While inherited funds are usually considered to be separate, they could be commingled during the marriage.

Generally speaking, a regular IRA can be divided in a divorce without triggering a taxable event. In practice, an inherited IRA can be divided too as courts have allowed this to take place. Those who act as the custodians of the IRA are allowing the division to take place based on the court order. When such an event takes place, a former spouse is added as a beneficiary to the IRA along with the current beneficiary.

It is important to note that unlike a regular IRA, additional contributions cannot be made to an inherited IRA. However, it is possible for the account to grow in value as the investments inside of it appreciate over time. This may occur if a spouse actively managed the account, and if that happened, it may play a role in determining whether the inherited IRA is commingled property that can be divided.

At the end of a marriage, any property that was accumulated during the union may be eligible to be divided. This may be true of an IRA whether it was created by a party to the marriage or inherited. An attorney may be able to help create an IRA transfer order and work with an individual to ensure that the transfer is done properly. This may avoid triggering a taxable event by mistake.